Tax Concerns Loom Large For Chicago CRE Despite Mayor Touting Less-Than-Expected Increase

Property taxes remain a sore subject in the city of Chicago, repeatedly proving to be one of the biggest threats to market growth and long-term investor interest in the city, per a new national tax analysis and a survey of commercial real estate professionals.

The city's effective property tax rate, or taxes owed relative to values, sits at an average of 2.1% in Cook County and at 2.16% for the state — almost double the national average and the second-highest effective rate in the nation, according to Smart Asset’s property tax calculator.

Chicago Lakefront

Meanwhile, in a year-over-year comparison via the DePaul University-Urban Land Institute’s 2022 Chicago Mid-Year Sentiment Report, Chicago real estate professionals’ concerns about the effectiveness of the city’s leadership and the continued uncertainty over the property tax situation remained high.

CRE professionals ranked their concern about city leadership and taxation at an average 4.34 on a scale of 1 to 5, little changed from 4.33 in 2021. Property tax uncertainty scored 4.15 in 2022 versus 4.27 in 2021.

While Mayor Lori Lightfoot recently announced the city will increase property taxes for homeowners by $42.7M instead of the $85.5M increase her inflation-tied property tax formula could have required, heads of real estate remain heavily concerned about lasting uncertainty, particularly with regard to commercial property owners.

In the budget announcement earlier this month, Lightfoot argued the 2.5% tax increase is modest and necessary to help fund city pensions, according to the Chicago Tribune.

“When all is said and done, a homeowner with a $250K home will pay $34 in one year,” she said, likening it to the price of an order of sandwiches for a family of four.

But that has done little to allay the concerns of commercial real estate heads, with some saying they are poised to bear the brunt of historic underassessment of commercial properties. Analysis by tax appeals firm O'Keefe Lyons & Hynes earlier this year indicated citywide commercial assessments could rise as much as 75% under Cook County Tax Assessor Fritz Kaegi, who has long lamented the level of tax burden shouldered by homeowners and is attempting to rebalance the scales.

O’Keefe Lyons & Hynes partner Brian Forde said the property tax situation in Cook County remains mired in a troublesome status quo.

“So-called reforms have done nothing to eliminate uncertainty that has been a hallmark for a very long time,” Forde said in DePaul's report. “In fact, it seems to be getting worse with policies that focus primarily on shifting the tax burden from residents to commercial property owners rather than getting valuations correct, or equally important, repairing issues with Cook County’s inequitable classification system.”

A delay in sending property tax bills is also on the minds of the industry, with speculation growing the second installment will be issued after Thanksgiving. The second installment of yearly tax bills hasn't been this late in decades, with the exception of the past two pandemic years, and Cook County Board President Toni Preckwinkle has hinted there could be delays in future billing cycles.

Forde said these taxing delays only create additional uncertainty, forcing taxing districts to borrow money at high interest rates until the tax bills are sent and paid, leading to hardship on the heels of the pandemic.

“Investors, and their lenders, crave certainty and definition of the expense items that are as substantial as property taxes,” Forde said. “It will help give sellers direction and the complete picture that they, and prospective buyers, have only been able to speculate.”

Continue reading this story with a free account

Log in or register
Sign up for more articles like this
Subscribe to Bisnow's Chicago Newsletters
Related Stories

Years Later, Millions In Chicago Housing Projects Remain Unbuilt

Rates, Rents And AI Risks: Peter Linneman's Warning For CRE

Chicago Office Deals Feature More Scrutiny, Added Tenant Protections

Delaware Statutory Trust Fundraising Jumps 27% From 2025

Local Investor Pays $30M For Block 37 In Heart Of Downtown Chicago

Major Movie Studio Campus Breaks Ground: The Chicago Deal Sheet

CRE Finance Sentiment Index Falls To 3-Year Low As Economic Fears Mount

RN3 Enters Dutch Logistics Market With DHL Sale-Leaseback Deal

Bears Stadium Saga Shifts Toward Potential Public Ownership Play

KKR's Chris Lee On Finding Opportunities As CRE Begins A 'Regime Change'

Morningstar To Relocate Global HQ To Renovated Thompson Center

CoreCivic Gets Third Leader In A Year After CEO Resigns